In India, the system of taxation as it is known today has been in force in one form or another even from ancient times. In this article we are discussing how the income tax evolved over the time in India.
 

History of Income Tax in India

1860 - The tax was introduced for the first time by Sir James Wilson. India's First "Union Budget" was introduced by Pre-independence finance minister, James Wilson on 7 April, 1860. The Indian Income Tax Act of 1860 was enforced to meet the losses sustained by the government on account of the military mutiny of 1857. Income was divided into four schedules taxed separately:

• Income from landed property
• Income from professionals and trades
• Income from salaries and pensions
• Income from securities

Time to time this act was replaced by several license taxes. 1886 - A separate income tax act was passed. This act remained in force with various amendments from time to time. Under the Indian Tax of 1886, income was divided into four schedules taxed separately:

• Salaries, pension, or gratuities
• Net profits of companies
• Interests on the securities of the Government of India
• Other sources of income

1918 - A new income tax act was passed. The Indian Income Tax Act of 1918 repealed the Indian Income Tax Act 1886 and introduced several important changes. 1922 - Again, it was replaced by another new act which was passed in 1922. The organizational history of the Income-Tax Department starts in the year 1922. The Income-Tax Act, 1922, gave, for the first time, a specific nomenclature to various income-tax authorities. The Income Tax Act of 1922 remained in force until the year 1961. The Income Tax Act 1922 had become very complicated on account of innumerable amendments. The Government of India therefore referred it to the law commission in 1956 with a view to simplify and prevent the evasion of tax. 1961 - In consultation with the Ministry of Law, finally the Income Tax Act, 1961 was passed. The Income Tax Act 1961 has been brought into force with effect from 1 April 1962. It applies to the whole of India including Jammu and Kashmir. Since 1962, several amendments of far-reaching nature have been made in the Income Tax Act by the Union Budget every year, which also contains the Finance Bill. After it is passed by both the Houses of Parliament and receives the assent of the President of India, it becomes the Finance Act. At present, there are five heads of income:

• Income from salary
• Income from house property
• Income from profits and gains of business or profession
• Income from capital gains
• Income from other sources

Every year during the Union Budget session, the tax implications change for each category of people with the motive to fuel government operations directed towards better services for people. As per the latest revision, tax for individuals, HUF and NRIs with an income below Rs.2.5 lakh is exempts. Moreover, senior citizens aged above 75 years are exempt from filing tax returns.

While people have the option to choose tax payment based on the old and new regimes at the present, both of them offers certain exemptions and deductions to help individual to increase savings. This includes the best tax saving investments like life insurance premiums, maturity payouts in certain cases, provident funds, national pensions scheme, house rent allowance, etc.

The Income Tax is levied on all earning individuals who fall under a taxable income bracket. The income Tax is paid to the Government of India and is charged annually. However, there are several tax deductions and exemptions that you can claim to lower tax liability.